How Trump’s proposed tariffs could affect crypto

Donald Trump wants to impose an additional tax of 25 percent on all commercial products coming from Canada and Mexico and 10 percent on Chinese goods. How will Trump’s tariffs affect the crypto market?

In a November 26 post on social media site Truth Social, US President-elect Trump announced that international tariffs will remain in effect “until we stop the Invasion of our Country on Drugs, especially Fentanyl and all Illegal Aliens.”

Throughout the presidential campaign, Trump placed trade tariffs high on his list of priorities, with a particular focus on Mexico. He told Mexican President Claudia Sheinbaum that he would impose tariffs of at least 25% if she did not take action against “criminals and drug attacks” crossing the border.

In a separate post, he also threatened to impose an additional 10% tariff on all imports from China and criticized the country for not imposing the death penalty on fentanyl dealers. Trump’s tariffs would be added to existing taxes Biden has imposed during his term in office.

Analysts warn that Trump’s tariffs will increase the cost of goods and potentially disrupt jobs, leading to widespread inflation in economies around the world.

How do tariffs affect the crypto market?

Tariffs are a fiscal tool used to protect local industries by making imported goods more expensive by increasing import taxes. While tariffs are known to have a more direct impact on the global trading environment and fiat currencies as a whole, they also play a role in elevating the crypto market.

Since tariffs make goods imported from other countries more expensive, the volume of imports will decrease, which will benefit domestic businesses. For consumers, this leads to an increase in overall living expenses as the cost of goods increases as demand decreases and is indicative of inflation.

Not only that, trade tensions created by the imposition of tariffs can also lead to economic uncertainty. This can be seen with the US dollar gaining 0.4% following Trump’s tariff announcement, while the currencies of affected countries such as Canada, China and Mexico are also seen experiencing a slight decline.

Graph showing the relationship between US Inflation rates and Bitcoin price, November 26, 2024 | Source: TradingView

Historically, inflation and economic tension caused by trade wars between the United States and China have shaken traditional financial markets. In the wake of such uncertainty, traders will seek alternative assets such as Bitcoin (BTC) to avoid the volatility of more traditional assets that are bound to be affected by trading. This is why Bitcoin is often described by investors as a “safe haven” asset.

Although inflation wreaks havoc on the national economy, it appears to have a positive relationship with Bitcoin growth. Take, for example, the 2018-2020 US and China trade war, in which the US increased the costs of technology and electric vehicles from China. This has led to increased interest in Bitcoin as investors struggle to protect their funds against the unstable market, driving up the price of Bitcoin.